Microsoft offered states deal on legal fees

Jonathan Krim, Washington Post

Published
4:00 am PST, Saturday, December 14, 2002

Shortly after a federal judge last month approved an antitrust settlement deal between the Justice Department and Microsoft Corp., the company's top lawyer approached the California attorney general's office with a special offer, according to several people familiar with the conversations.

If California and other states that had challenged the settlement decided to appeal the judge's ruling, Microsoft would not only fight the appeal but also contest how much in legal costs the states were entitled to recover from the long-running litigation.

But if the nine states and the District of Columbia decided against appeal, Microsoft would cover the states' expenses, plus provide an additional pot of funds for the states to help enforce the settlement deal, the sources said.

After some deliberations, California -- which had agreed to bear the lion's share of the states' legal costs to challenge the agreement -- decided to accept the offer, along with six other states and the District of Columbia. On Nov. 29, they announced that Microsoft would pay them a total of $25 million in legal fees, plus $3.6 million for technical experts and other resources to help ensure that the software giant complies with the settlement's terms.

"It was apparent that Microsoft would be generous and not give us any trouble over fees," said one attorney. "But if any one state did appeal, the generosity wouldn't be as great, and any appealing state would not participate in any fee payment."

Massachusetts and West Virginia decided to press on with the case and will have to seek court costs whenever their appeal is concluded.

But some legal experts, as well as Microsoft's corporate rivals, said the other states gave up an important opportunity to appeal the ruling, arguing that the judge erred in not forcing Microsoft to disgorge the fruits of its illegal practices. They worry Microsoft was able to use its financial resources to help persuade the states.

The states that took the deal said that it was time to end litigation and focus on enforcing the settlement, which imposed a series of restrictions on Microsoft's business practices after it was found to have illegally protected its monopoly Windows operating system.

Williams & Connolly, the Washington, D.C., firm that handled the states' challenge, had determined there were grounds for appeal, according to sources. But the states had received varying legal opinions on the chances for successful appeal, according to one state attorney.

Deborah Rhode, a professor of legal ethics at Stanford University, said that such negotiations, while not a "pretty practice," are not unusual in corporate litigation. She added that the U.S. Supreme Court has affirmed the propriety of simultaneous negotiations over fees and legal issues.